Fed Sent $77.7 Billion in Profits to Treasury Last Year

The Federal Reserve sent about $77.7 billion in profits to the Treasury Department in 2013, the result of gains reaped from its unconventional efforts to spur economic growth.

In 2012, the Fed sent a record $88.4 billion to Treasury coffers.

The Fed’s portfolio of securities and other assets has swelled to more than $4 trillion since the financial crisis, growth driven largely by several rounds of bond purchases aimed at lowering long-term borrowing costs to spur more spending, investment and hiring.

Those efforts are now generating large profits as the central bank earns interest on the assets. The Fed in a statement released Friday said it made an estimated $79.5 billion in net interest income, a total largely driven by the $90.4 billion in interest income it made on its portfolio of Treasurys, mortgage bonds and other securities.

The Fed is required to use its income to cover its operating expenses and send much of the rest to the Treasury’s general fund, where it is used to pay government bills and benefits. The payments to Treasury are called remittances. Fed Chairman Ben Bernanke has said that since 2009, the Fed has sent more than $350 billion to Treasury, about equivalent to the amount it had sent during the entire 18-year period before the crisis.

In December, the Fed decided to start scaling back its bond purchases, reducing its monthly purchases to $75 billion from $85 billion. If the economy improves along the lines the Fed expects, officials anticipate continuing to reduce the program throughout 2014.

The numbers released by the Fed Friday give a preliminary, unaudited estimate of its income, operating expenses and remittances to Treasury for 2013 and are subject to revision.

The Fed also said that the system’s operating expenses totaled about $5.7 billion for the year, including $3.8 billion in operating expenses for the 12 Federal Reserve banks and $580 million in board expenditures. The total also included $702 million for currency-related costs and $563 million the Fed turned over to fund the operations of the Consumer Financial Protection Bureau. Under the 2010 Dodd-Frank law, the bureau gets its operating budget from the Fed.

There are a couple of likely reasons the Fed made less profit in 2013 than the previous year, even though its securities portfolio was larger. These include profits the central bank booked in 2012 from liquidating the crisis-era Maiden Lane funds that held toxic assets acquired from the 2008 bailouts of American International Group Inc. and Bear Stearns. With the funds closed, the Fed made no such profits this year.

The Fed also made billions on “Operation Twist” last year, a program in which the central bank bought long-term Treasury securities and funded the purchases by selling shorter-term Treasurys. The Fed didn’t continue the program in 2013.

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